European Integration Consortium. IAB, CMR, frdb, GEP, WIFO, wiiw. Labour mobility within the EU in the context of enlargement and the functioning

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1 European Integration Consortium IAB, CMR, frdb, GEP, WIFO, wiiw Labour mobility within the EU in the context of enlargement and the functioning of the transitional arrangements VC/2007/0293 Deliverable 8 Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) Country Study: Ireland Peter Wright Abstract Ireland, along with the UK and Sweden, announced an immediate opening of its borders to nationals of the NMS that became part of the EU in May In the last decade the proportion of foreign born residents in Ireland has doubled to 15%. Many of these migrants come from the new member states. They tend to be relatively young and relatively well educated. However, at present they tend to work in low skilled employment in hotels, restaurants and manufacturing. The benefits that accrue to the Irish economy and the immigrants themselves should increase as they become more fully integrated and moved up the skill ladder. The views and opinions expressed in this publication are those of the authors and do not necessarily represent those of the European Commission.

2 Contents 1 The Institutional Setting The institutional arrangements for recent migration Other aspects of the Irish labour market The Irish Economy: macroeconomic performance Relevant data sources and limitations Censuses Quarterly National Household Survey (formerly Labour Force Survey) Personal Public Service Numbers (PPSN) Work Permits Patterns of labour mobility to Ireland Historic patterns of migration Stocks and flows of NMS migrants Employment Patterns Effects of labour mobility on the Irish Labour Market The wage and employment effect on natives Macro-Economic Impacts Effect on Public Finances Effects on Immigrants Summary References... 11

3 1 The Institutional Setting 1.1 The institutional arrangements for recent migration Ireland, along with the UK and Sweden, announced an immediate opening of its borders to nationals of the 8 Eastern European countries, plus Malta and Cyprus, that became part of the EU in May 2004 (Employment Permits Bill, April 2003). This change applied to both new immigrants and to those that had already been working in Ireland before enlargement, and so was, in addition, effectively an amnesty for those previously working illegally. Unlike the UK, the Irish government does not require accession state nationals to acquire special registration certificates after taking up employment. The primary means of monitoring the numbers of migrants is via the number of social security (PPS) numbers issued. In common with UK policy, the Irish government did introduce transitional arrangements with respect to the receipt of welfare benefits. The Habitual Residence Condition required that foreign nationals live in the Common Travel Area 1 for two years before being entitled to social assistance or child benefit. With the accession of Bulgaria and Romania, given the previous large influx of migrants from the 10 new member states, Ireland introduced a seven-year transition period during which nationals from these countries would have to apply for work permits like non-eea (European Economic area) nationals. It was however agreed that they be given preference over third country nationals in this regard. 1.2 Other aspects of the Irish labour market The Irish labour market is relatively unregulated and flexible compared to many other European economies. The benefit replacement ratio has been falling since the early 1980s (Nickell, Nunziata and Ochel, 2005) and is now comparatively low by international standards. Ireland has also substantially tightened the administration of benefits in recent years. Trade unions represent just over 40% of the workforce, with pay agreements being highly co-ordinated. It remains an attractive destination for foreign direct investment, especially in high value added sectors. 1.3 The Irish Economy: macroeconomic performance The mid-1990s saw a sharp upturn in the fortunes of the Irish Economy. Real growth rates of more than 8% of GDP were more than double that of any other OECD country (Figure 1). This generated a sharp increase in the workforce with total employment 1 Ireland, the UK, Channel Islands and Isle of Man. GEP 1

4 growing by 25% between 1993 and Over the same period, the unemployment rate fell from 15.4% to 7.7%. Figure 1: Real GDP growth (%): Real GDP growth (%) Source: OECD The performance of the Irish Economy, the Celtic tiger, has continued to be strong and sustained over the past decade, with growth rates exceeding 5% of GDP. This success is reflected in its strong labour market performance, with unemployment rates continuing to fall and remaining low by international standards since accession at between 4 and 5 % (Figure 2). Demand for overseas labour was strong before accession: Doyle et al. (2006) report that in the year before accession over 45,000 work permits were issued in Ireland. The dramatic recent downturn in the world economy is however evident in the GDP growth figures for 2008, with GDP falling by 2.3 per cent. GEP 2

5 Figure 2: Irish and EU-15 Unemployment rates 10 9 Ireland Unemployment rate EU-15 Unemployment rate Unemployment rate (%) q1 2001q1 2002q1 2003q1 2004q1 2005q1 2006q1 2007q1 Source: Eurostat The rapid growth in the Irish Economy has been facilitated by rapidly rising labour market participation over this period (Figure 3), which in part reflects the high participation of immigrant workers. Female participation, despite rising substantially in recent years, remains relatively low. GEP 3

6 Figure 3: Irish and EU-15 employment rates 75 Ireland employment rate EU-15 employment rate Employment rate (%) q1 2001q1 2002q1 2003q1 2004q1 2005q1 2006q1 2007q1 Source: Eurostat 2 Relevant data sources and limitations 2.1 Censuses The primary sources of information on migrant stocks are the censuses that were conducted in 1991, 1996, 2002 and They contain detailed information on birthplace and nationality, employment status, and sector of work. 2.2 Quarterly National Household Survey (formerly Labour Force Survey) More detailed socio-demographic information is available from the Quarterly National Household Survey (QNHS). This is a large-scale, nationwide survey of households in Ireland. It is designed to produce quarterly labour force estimates that include the official measure of employment and unemployment (ILO basis). The survey began in September 1997, replacing the annual April Labour Force Survey (LFS). Approximately 39,000 households are interviewed each quarter. The nationality codings in the QNHS are however limited. Prior to 2005 it records: Irish, UK, Rest of EU, Other, American. From 2005 it records: Irish UK EU-15 (excluding Ireland and UK) New Member States GEP 4

7 Other American. 2.3 Personal Public Service Numbers (PPSN) PPSN numbers are derived from the Central Records System of the Department of Social and Family Affairs and the P35 files (employer end-of-year returns) of the Revenue Commissioners. Variables include: the date the PPSN was assigned, the nationality at that time, age and sex. They are useful for tracking gross inflows of migrants. 2.4 Work Permits In general, a non-eea national requires an employment permit to take up employment in Ireland and data on permits is collected by the Department of Enterprise, Trade and Employment. Although this does not apply to workers from the 10 accession countries, permits are required for workers from Romania and Bulgaria. 3 Patterns of labour mobility to Ireland 3.1 Historic patterns of migration Ireland has a long history as a country of net emigration. Between 1861 and 1961 net emigration consistently exceeded the natural rate of increase of the Irish population. As a consequence, the population shrank from 4.4 million to 2.8 million over this period. Apart from a short period in the 1970s, this pattern continued until the mid 1990s, when Ireland became the last EU member state to become a country of net immigration. This was largely due to the increase in immigration, especially from the mid 1990s onwards, as overseas workers were drawn to a booming economy with a rapidly increasing demand for labour (Figure 4). GEP 5

8 Figure 4: Immigration and emigration, Ireland Thousands Year Immigration Net migration Emigration Source: Central Statistical Office; Dublin. Some of this increase in immigration was as a result of Irish return migrants, whose numbers increased steadily until 2002, though as a proportion of immigrants their importance diminished over this period. Non-EU15 immigrants have seen the largest increase in proportionate terms. The impact of this influx on the ethnic composition of the population has been dramatic. In 1991 only 6% of the population was foreign born, whereas by 2002 this had risen to more than 10%. Over this period the share of non-eu15 residents rose from 1 to 3%. By 2007 about 15% of people living in Ireland were born outside the country, 10% of whom were foreign nationals. 3.2 Stocks and flows of NMS migrants Table 1 gives details of population migration into and out of Ireland from 2000 to Owing to data limitations, migration flows from the 10 Accession States are unavailable prior to 2005, and available only on a grouped basis subsequently. The dramatic influx of migrants from the new EU member states from 2004 can be seen. This has declined in the last year as the economic situation has deteriorated, but return migration to these countries remains relatively small. GEP 6

9 Table 1: Estimated Population Migration (Thousand) by Migration Flow, Country Net migration United Kingdom European Union 15 excl. UK and Ireland United States of America Rest of the World NMS Outward migration United Kingdom European Union 15 excl. UK and Ireland United States of America Rest of the World NMS Inward migration United Kingdom European Union 15 excl. UK and Ireland United States of America Rest of the World NMS Source: CSO, Ireland Table 2 illustrates the number of PPS numbers allocated by nationality between 2004 and This demonstrates the preponderance of Polish and Lithuanians amongst recent immigrants. Note that the number of PPS numbers is a measure of the gross rather than the net inflow. However, it again illustrates the rapid rise in new arrivals from the NMS- 10 since 2004 and the sharp decrease of arrivals in 2008 as the economic situation deteriorated. Table 2: Allocation of Personal Public Service (PPS) Numbers in Ireland Poland 25,104 64,718 93,609 79,816 42,554 Lithuania 11,368 18,707 15,917 10,728 6,443 Latvia 5,733 9,327 7,866 4,674 3,727 Slovakia 4,554 9,256 10,497 8,415 4,994 Czech Republic 3,045 4,503 4,407 3,838 2,762 Hungary 1,746 2,985 4,234 5,046 4,562 Estonia 1,630 2,011 1, Slovenia Romania 14,525 6,762 Bulgaria 1, Total 59, , , ,721 73,235 Source: Department of Social and Family Affairs GEP 7

10 According to figures collected in the census (Table 3), around 120,000 NMS-10 citizens were living in Ireland in 2006, with approximately three-quarters coming either from Poland or Lithuania. Table 3: Usually resident persons, males and females present in the State on Census Night, by nationality and age group, 2006 Total Total Irish 3,706, , ,777 1,089, , ,227 Non-Irish 419,733 52,500 75, ,281 57,181 15,084 EU25 275,775 28,695 51, ,788 44,921 12,545 Poland 63,276 4,790 17,665 36,464 4, Lithuania 24,628 2,778 6,728 12,987 2, Latvia 13,319 1,238 3,690 7,106 1, Slovakia 8, ,465 4, Czech Republic 5, ,292 3, Hungary 3, , Estonia 2, , Slovenia Romania 7,696 1,024 1,156 5, Cyprus Malta Total 4,172, , ,465 1,320, , ,200 Source: Census, CSO Ireland Note, that migrants from the new member states are slightly younger (median age 29) than the native population (median age 33) and much more likely to be of working age. 3.3 Employment Patterns Table 4 documents the ILO economic status of migrants and natives in autumn Migrants from the new member states have a very high participation rate (84%) both in comparison with Irish nationals (61%) and with other migrants (66%). The relatively high unemployment rate (10.1%) amongst NMS migrants is partly attributable to those looking for a job for the first time. However this rate has also doubled since autumn 2007 with the decline in the economic situation. Interestingly, in contrast to Table 1, Table 4 shows a small decline in the NMS-10 population, perhaps suggesting that some return migration has begun to occur following the decline in job prospects. GEP 8

11 Table 4: Estimated number of persons aged 15 years and over classified by nationality and ILO Economic Status, Sept-Nov 2008 (thousands) Nationality Employed Unemp. In labour Not econ. Total Force active Quarter Irish nationals 1, , , ,062.2 Non-Irish nationals of which: United Kingdom EU15 excl. Ire & UK Accession states (EU15 to EU27) Other Total persons 2, , , ,538.3 Year on year changes Irish nationals Non-Irish nationals of which: United Kingdom EU15 excl. Ire & UK Accession states (EU15 to EU27) Other Total persons Source: CSO, Quarterly National Household Survey Table 5 illustrates the preponderance of migrant workers from the NMS in hotels and restaurants as well as low skill manufacturing and construction. They are also slightly more likely than Irish workers to work shifts, evenings and weekends (Barrett and Bergin, 2007). Table 5: Sectoral Employment of NMS-10 nationals Irish Born NMS-10 nationals Other non- Irish Total Hotels, restaurants Financial, business manufacturing Construction Wholesale, retail trade Health, social work Transport, communications Agriculture Education Public administration, defence Source: Census, CSO Ireland Immigrants from the NMS have higher educational levels than Irish nationals (OECD, 2008), though they tend to be less well qualified than previous migrants. The occupational mismatch of these workers is relatively high, however, and they tend to work in jobs for which they are overqualified. Doyle et al. (2006) note that, although it is not possible to calculate hourly earnings separately for native and NMS-10 workers, earnings growth rates did decline in most sectors after accession. GEP 9

12 4 Effects of labour mobility on the Irish Labour Market Academic research about the impact of migration on the Irish labour market is relatively limited. 4.1 The wage and employment effect on natives Barrett, Bergin and Duffy (2006) simulate the impact of migration from on the earnings of natives, allowing the impact to differ by skill group. In this analysis they allow for the fact that many migrants are employed in occupations below their educational level. They find that, largely due to the high share of high skilled migrants over this period, the primary impact was at the top end of the skill distribution, compressing earnings. They also suggest that since these immigrants were complements for unskilled labour, they served to increase the demand for those at the bottom end of the skill distribution. More recent immigration to Ireland from the new member states has, as noted above, been less skilled than earlier. Analysis by the OECD (2008) gives indicative evidence that wage growth has been depressed in those sectors that have experienced the highest inflow of NMS-10 migrants. They also present evidence that, possibly as a result, this had led Irish workers to move from those sectors. Doyle et al. (2006) note that there has been a debate in Ireland about whether foreign workers are displacing native workers and receiving pay which is less than the collectively agreed rate. While there is significant anecdotal evidence, Doyle et al. (p.69) conclude that: The statistical data that have been used to address the displacement issue are capable of different interpretations and further research is needed 4.2 Macro-Economic Impacts A number of studies have attempted to estimate the impact of immigration on GNP growth in Ireland. Barrett, Bergin and Duffy (2006) estimate that the immigrants that arrived between 1993 and 2003 increased GNP by between 3 and 3.7%, depending on assumptions regarding the impact on skilled wages. However this impact is small compared to the overall increase in the size of the economy. In comparing the impact of recent migration across countries, Barrell, Fitzgerald and Riley (2007) also suggest beneficial impacts on Irish GDP (3.3%), though this amounts to only a 0.7% rise in GDP per capita in the long term. 4.3 Effect on Public Finances There has been no comprehensive study of the impact of immigration on public finances in Ireland. Ireland adopted similar restrictions as the UK for the receipt of social benefits. Foreign nationals were generally required to have lived in the Common Travel Area GEP 10

13 (Ireland, UK, Channel Islands, Isle of Man) for at least two years before being entitled to social assistance. Barrett and McCarthy (2006) find that, in 2004, immigrants are half as likely to be in receipt of welfare benefits compared to equivalent natives. Given the preponderance of working age migrants from the 10 new member states, expenditure on healthcare and education is likely to be relatively small, especially as many of the initial migrants did not bring dependant children with them. 4.4 Effects on Immigrants Barrett and McCarthy (2007) examine the relative earnings of migrants using the EU Survey of Income and Living Conditions for 2004 and They find that, after controlling for education and labour market experience, immigrants earn 18 percent less than equivalent Irish workers. For immigrants from non-english speaking countries this rises to 31%, with the earnings disadvantage of those from the 10 New Member States being as high as 45%. Interestingly, Barrett and McCarthy (2007) find evidence that these gaps may be partly explained by lower returns to human capital for immigrants, with the more highly educated facing the biggest wage gap. This point is examined further in Barrett, Bergin and Duffy (2006) and Barrett and Duffy (2008) who use the Quarterly National Household Survey to examine the occupational attainment of migrants. They find strong evidence that immigrants are employed at lower positions in the occupational ladder than Irish workers of similar age and education. Further, this gap is particularly pronounced for workers from the New Member States, with little evidence of assimilation over time. 5 Summary In the last decade the proportion of foreign born residents in Ireland has doubled to 15%. Many of these migrants come from the new member states. They tend to be relatively young and relatively well educated. However, at present they tend to work in low skilled employment in hotels, restaurants construction and manufacturing. These sectors are likely to be particularly vulnerable to the current economic downturn, and the level of net migration is likely to fall, at least in the short run, as job opportunities dry up. However the stock of foreign born residents is likely to remain high, and the long-run benefits that accrue to the Irish economy and the immigrants themselves should increase as they become more fully integrated and moved up the skill ladder. 6 References Barrell, R., FitzGerald, J., and Riley, R. (2007), EU Enlargement and Migration: Assessing the Macroeconomic Impacts, National Institute for Economic and Social Research Discussion Paper No. 292 (London). GEP 11

14 Barrett, A. and A. Bergin (2007), The Economic Contribution of Immigrants in Ireland, in B. Fanning (ed.), Immigration and Social Change in the Republic of Ireland, Manchester University Press. Barrett, A., Bergin, A. and Duffy, D. (2006) The Labour Market Characteristics and Labour Market Impacts of Immigrants in Ireland, Economic and Social Review Vol. 37 No. 1. Barrett, A. and D. Duffy (forthcoming 2008), Are Ireland s Immigrants Integrating into its Labour Market?, International Migration Review, 42(3). Barrett, A. and Y. McCarthy (2006), Immigrants in a Booming Economy: Analysing their Earnings and Welfare Dependence, IZA Discussion Paper, No. 2457, Bonn. Barrett, A. and Y. McCarthy (2007), The Earnings of Immigrants in Ireland: Results from the 2005 EU Survey of Income and Living Conditions, Quarterly Economic Commentary, Economic and Social Research Institute, Winter. Doyle, N., Hughes, G. and Wadensjö, E. (2006), Freedom of movement for workers from Central and Eastern Europe: experiences in Ireland and Sweden Swedish Institute for European Policy Studies working paper 2006:5. Nickell, S., Nunziata, L. and Ochel, W. (2005), Unemployment in the OECD since the 1960s. What do we know?, Economic Journal 115 pp OECD (2008), Integrating Migrants: Learning from OECD experience. Chapter 6 in OECD Economic Surveys, Ireland, Volume GEP 12